Effective Strategies for 3rd-Party Sales Success
In e-commerce, 3rd party sales generally refer to partner sellers on an e-retailer’s marketplace. In a marketplace, third-party sellers sell directly to the buyer and are legally responsible for the proper execution of the sale.
Depending on the case, third-party sellers can directly manage their products’ logistics (storage, shipping, etc.) or entrust part of them to the e-retailer offering marketplace services. It is the third-party sellers who decide on their sales prices. The marketplace manager takes a commission on sales.
Amazon would thus have several million third-party sellers on its various national marketplaces.
Note that a customer buying from the marketplace part of an e-retailer does not always realize they are purchasing from a third-party seller rather than the marketplace operator. These third-party sellers are often referred to as 3P.
How to Monetise 3rd-Party Sales
There are several ways you can make money from third-party selling.
The first method is commission-based. It’s also the most common way. The platform will usually charge sellers a commission on the Gross Value.
It’s important to note that commission fees don’t comprise shipping fees since they could impact the ability to secure Vendors.
There are several types of commissions: seller and category commission. The former is based on the value of the order, and the latter is based on the item category.
The second method is wholesale. In this model, you, as a retailer, can negotiate listed product prices. You can see this price on the platform, along with the sale and retail price.
Once the product is sold, the seller or Vendor gets the agreed list price. It’s a great method for retailers with a considerable customer base. They usually like to give discounts and promotions without affecting the value agreed with the Vendor.
Rebates are also a great earning model. This is a particularly useful monetisation model offering considerable price competitiveness to retailers.
A rebate represents the percentage of the sales generated for the specific seller. It’s paid back to the retailer after a certain period, usually annually or monthly.
When determining a discount, Sellers will set a target sales goal for a specific time frame, with the discount amount depending on whether the sales meet or exceed that goal (e.g. a 5% discount for total sales surpassing $2 million for the year, and 3% for sales below $1.5 million). Adapt discounts to the product category and the seller.
Third-party sellers on online marketplaces can monetise through subscription fees, advertising, value-added services, and transaction fees. Service platforms commonly use subscription models, while vendors charge transaction fees for each sale.
Tips for 3rd Party Sales Model Strategy
You can profit greatly once you properly set your third-party sales strategy. Let’s see some important factors that could affect the success of your online retail business.
First, you must assess the type of potential sellers, particularly in the first year of business. Bad customer experience can greatly impact confidence, especially when cross docking. Delays in Third Party fulfillment can impact the time customers get their packages.
Include service-level agreements in your new vendor contracts.
Also, you should properly monitor ratings, seller performances and customer reviews to eliminate low-performing ones.
Avoid back orders and ensure your sellers provide real-time inventory lists. Customers need to receive their products rather than be informed that their order is out of stock after placing it. This can harm the business and lead to very bad reviews.
In your retail business you should set realistic expectations regarding your seller. Some retailers who choose a third-party selling model overestimate the potential value and revenue. As a business owner, you need to be patient and build slowly.
Develop your monetisation strategy that will easily attract new sellers. From your seller’s perspective, new third-party channels are risky. That’s because they need to put additional effort into approaching new customers and handling new catalogues.
Therefore, your task is to make it easier for sellers to join your platform without importing subscription fees. If you are confident of driving profits, focus on the rebates model. It’s a method offering the best cost and benefits mix for new sellers.
Bottom Line
Marketers working on 3rd party sales should understand and align incentives with channel partners, provide exceptional sales support, and create demand for their product. Marketers need to optimise existing structures, make it easy for third-party sales teams to become experts in the product, and ensure the product is valuable to customers. Getting the marketing mix right, especially when distribution channels create complexity.
